All about Public Provident Fund (PPF) Scheme

Public Provident Fund (PPF) Scheme is a long-running savings avenue for investors in India.

In fact, Public Provident Fund (PPF) is one of the most popular savings instrument in India.

The principal and the interest earned in PPF Scheme have a sovereign guarantee, plus the returns are tax-free.

Moreover, PPF Scheme offers tax benefit under the EEE (exempt-exempt-exempt) tax status.

The principal invested in the Public Provident Fund Scheme qualifies for tax deduction under Section 80C of the Income Tax Act (1961). Plus, the interest earned is tax exempt under Section 10.

PPF is a 15-year investment scheme from the Government of India. It can also be extended indefinitely in a block of 5 years.

One can open a PPF Account in a designated post office or a bank branch. It can even be opened online with a few banks.

You can transfer your PPF Account from a post office to a bank or vice versa.

You can deposit a maximum of 12 times in a year in your Public Provident Fund Account. However, you should deposit before the 5th of the month to get interest for the full month.

You can make partial withdrawals and can take loans from the scheme as well.

Public Provident Fund - PPF Scheme

What is Public Provident Fund (PPF)?

The Public Provident Fund (PPF) Account is a savings cum tax-savings Avenue introduced by Ministry of Finance, Government of India in 1968.

PPF is one of the most popular tax savings instrument offered by Government of India, whose major motive is to mobilize small savings by offering Indian Citizens an investment option which gives reasonable returns coupled with Income Tax Benefits.

The big highlight of PPF Scheme is the fact that deposits made in the PPF Account are not taxable. Deposits made under PPF Account can be claimed as tax deductions.

That is why PPF Scheme has the status of being one of the most tax-efficient instruments in India.

It helps to encourage savings among Indians and is a great instrument for building a retirement corpus.

The present Public Provident Fund Interest Rate stands at 7.6% per annum (compounded annually) that is the PPF Interest Rate 2018-19 is 7.6% per annum (compounded annually).

Tax bracket for Public Provident Fund Account is EEE (i.e., Exempt, Exempt, and Exempt). Contributions are tax-exempt under Section 80C.

Plus, interest earned and the final amount is fully exempted from wealth tax, as well.

Here, we list out some of the main aspects of PPF Scheme that you should consider before opening one.

Current PPF Interest Rate

In Public Provident Fund Scheme, the returns are not linked to the stock market performance. In fact, PPF is a debt-oriented asset class. So, the investments in PPF are not exposed to equities.

The interest rate in PPF Scheme is determined by Government of India. It is set by government every quarter considering the yield of government securities.

As of now (2018-19), PPF Scheme offers 7.6% interest, compounded annually.

Public Provident Fund Deposit Limit

The minimum annual amount required in PPF Account is Rs.500. The maximum deposit limit in PPF Account in a given financial year is Rs.1.5 lakh.

Any amount more than Rs. 1.5 lakh in a year will not carry any interest nor will be eligible for tax benefit under Section 80C.

The excess amount is refunded to the subscriber without any interest.

PPF Account for the Minors

The father or mother of the minor can open a PPF Account on behalf of the minor. However, both the parents are not allowed to open a separate account for the same minor.

So, only one PPF Account can be opened on behalf of each minor of whom he is the guardian.

However, grandparents cannot open PPF Account for their grandchildren, when the parents of the minor are alive.

That said they can only open PPF Account for the minor when they are legal guardian after the death of the child’s parents.

Number of PPF Accounts Individual Can Open

An individual is allowed to open only one PPF Account in his name in a bank or a post office.

This has to be declared in the application form for opening the account. So, a person having a Public Provident Fund Account in the bank cannot open a PPF Account in the post office and vice-versa.

However, if one opens two accounts by mistake, the second account he or she has opened will be treated as irregular account and will not gain any interest unless the two accounts are amalgamated together.

For this, one has to get the approval of Ministry of Finance – Department of Economic Affairs.

Premature Closure of PPF Account

Apart from loans and partial withdrawals, now even premature closure of the PPF Account is also possible.

However, the premature closure of the PPF Account is only allowed after completion of five financial years and on specific grounds such as life-threatening disease of the account holder, or treatment of the serious ailment.

One needs to produce supporting documents from the competent medical authority.

The premature closure is also allowed if the amount is required for the education of the minor account holder or higher education of the account holder.

One needs to produce documents and fee bills to confirm admission in a recognized institution in India or abroad.

PPF Nomination

The nomination can be done by filling the nomination form (Form E) at the time of opening a PPF Account.

It is a separate form and needs to be filled along with the application form of PPF (Form-A).

PPF Account Attachment

The Public Provident Fund account balance cannot be attached by a court. So, the debtors cannot access one’s PPF account for claiming the dues, if any.

However, this rule is not applicable to income tax authorities. The amount in the Public Provident Fund Account is liable to be attached to any order from income tax authorities with regards to debt or liability incurred by the subscriber.

How to open a PPF Account?

Any resident Indian Individual can open PPF account under the Public Provident Scheme. Individuals on behalf of minors can also open a PPF Account.

PPF Account can be opened with any nationalized bank including SBI, PNB, Central Bank of India, etc. It can also be opened with a post office and even with an authorized private sector bank such as ICICI, HDFC Bank, and Axis Bank.

An individual is allowed to maintain only one Public Provident Fund (PPF) Account, except a PPF Account that is opened on behalf of a minor.

Grand Parents are not allowed to open a PPF Account on behalf of their minor grandchild.

Documents required for opening a PPF Account include:

  • PPF Account Opening Form
  • ID Proof
  • Residence Proof
  • Passport Size Photograph
  • Copy of PAN Card/Form 60-61
  • Nomination Form

If a customer doesn’t deposit the minimum amount of Rs.500 in his PPF Account, a penalty of Rs.50 is levied per year of default.

The Government allows the subscribers to deposit amount in their PPF Account in a maximum of 12 installments.

However, they can also deposit amount in lump sum. The PPF Scheme comes with duration of 15 years and subscribers can even extend it for blocks of 5 years each.

One withdrawal per year is allowed for customers from the 7th financial year.

The tenure of Public Provident Fund Account can be extended for a block period of 5 years beyond the maturity period.

Loan Facility on PPF Account is available from 3rd Financial Year up to 5th Financial Year.

The Interest rate charged on loan taken by the subscriber on his PPF Account is 2% more than the prevailing interest rate on PPF Account.

Just have a look at the fund corpus that you can build using Public Provident Fund Scheme.

For example: With an annual deposit of Rs.150000 for PPF Tenure of 15 years, you can get maturity amount equaling Rs.44,37,132 with an annual rate of 8.1% (compounded annually).

Likewise, an annual deposit of Rs.150000 for the tenure of 30 years can fetch you an enormous amount of Rs.1,87,09,228 at 8.1% per annum (compounded annually).

Some Highlights of PPF Account

  • PPF Scheme was introduced by the Ministry of Finance, Central Government of India in 1968.
  • It is a savings-cum-tax-savings investment option.
  • The present interest rate on PPF Account is 7.6% per annum (compounded annually).
  • The Duration of Public Provident Fund Scheme is 15 years.
  • The minimum deposit amount in PPF Account is Rs.500 per year.
  • The maximum deposit amount in PPF Account is Rs.1.5 Lakhs per year.
  • A resident Indian is permitted to open a PPF Account.
  • An individual can open only one PPF Account.
  • The number of times a subscriber can deposit amount in his PPF Account is 1(Min) to 12(Max).
  • The Lock-in period for PPF Scheme is 15 years. However, partial withdrawals can be made from the sixth year.
  • PPF Account comes with Nomination Facility. A PPF Subscriber can do nomination in the name of one or more persons. Shares of nominees can also be defined.
  • PPF Account can be extended for the period of 5 years after the tenure of 15 years.
  • A PPF Account stands deactivated if the minimum amount in any year is not deposited. To activate the PPF Account, the bearer needs to pay a penalty of Rs.50, plus a contribution of Rs.500 for each inactive year.
  • In the case of death of PPF Account Holder, the PPF Fund is paid to the nominee or legal heir (even before of tenure of PPF Scheme).
  • Contributions made to PPF Account are tax deductible under section 80C.
  • Interest earned and final amount under PPF Account is fully exempt from Wealth Tax.
  • PPF Account can be transferred to other branches/banks or post offices free of charge.

Features and Benefits of PPF Scheme

Below you will find some of the key and important features of PPF Scheme:

PPF Interest Rates: PPF Scheme interest rates are decided by the Central Government of India. It is usually announced annually.

The interest earned on PPF Account has compounded annually. The present rate of PPF Interest stands fixed at 7.6% per annum.

PPF Account Term: The PPF Account Term stands at 15 years. However, subscribers can continue their account beyond maturity for a block of 5 years at every renewal, with or without making any additional deposits.

Public Provident Fund Account Opening Amount: PPF Account can be opened with a sum of Rs.100.

Annual Deposit Amount: As per the present Government directive, the annual deposit amount is between Rs.500 to Rs.1.5 Lakhs.

If a subscriber does not deposit the minimum annual investment, his PPF Account will be rendered inactive.

Deposit Frequency: In a PPF Account, the deposit has to be done every year. The maximum deposit frequency is 12 installments.

Deposit Modes: Deposits in PPF Account can be made by cash, cheque, PO, DD, or online funds transfer.

Withdrawals: Complete withdrawal of funds in a PPF Account can be made only at maturity.

However, partial withdrawals are allowed from the 7th year of running a PPF Account (subject to other conditions).

Nomination: PPF Account comes with Nomination facility which can be done at the time of opening the Account or after that.

Funds Transfer: Funds transfer is not allowed between people but can be transferred between bank branches or post offices for free.

Loan Facility: Loan can be availed against funds held in the PPF Account from the 3rd to 6th Year.

Joint Accounts: Joint Accounts are not allowed.

Key Benefits of PPF Account are as follows:

PPF Accounts offer attractive long-term investments option: PPF Accounts serve long-term investment goals. It comes with a deposit period of 15 years and a lock-in period of 7 years, making it a viable long-term investment medium.

Moreover, interest rates in PPF Accounts have compounded annually which makes it a better investment option than bank FDs.

PPF Accounts offer Tax Advantage: Interest earned on PPF Deposits is tax-free. Plus, deposits made in PPF Account are tax deductible under section 80C of the Income Tax Act. Withdrawals are also exempted from Wealth Tax.

Retirement Planning Tool: PPF Accounts serve as retirement planning tool. Capital protection, tax benefits, long-term investment, and compounded interest are just a few of the reasons which go on to make it a superb retirement planning investment option.

Low Risk: The Indian Central Government promotes PPF Accounts; hence they have a low risk of default.

Easy Accessibility: PPF Accounts can be easily opened at any of the nationalized, public sector banks or post offices or even at some selected private sector banks.

All of these avenues have a wide reach making it easy for people to open and maintain their PPF Accounts according to their convenience.

No Attachments: The PPF Account Funds cannot be attached under court order; neither any creditor can claim it.

PPF FAQ

Here are some of the most Frequently Asked Questions about PPF (Public Provident Fund)

Q. What is the current PPF interest rate?

The Government of India establishes the interest rate on PPF Account. The present interest rate on PPF Account is 7.6% P.A. (compounded annually) which is effective from 1st April 2018. The interest is paid on 31st March every year.

Q. What are PPF Maturity Options?

A subscriber to PPF Account is given three options once the maturity period gets over.

1. Complete withdrawal of fund.

2. Extend the PPF Account without Annual Contribution – This option is activated automatically if a subscriber to PPF Account does not take any action within one year of his PPF Account maturity.

One withdrawal is permitted in a given financial year. However, any amount from the PPF Fund can be withdrawn under this option. The balance amount in the PPF Fund keeps earning interest.

3. Extend the PPF Account with Contribution – to activate this option; a subscriber needs to deposit Form H with the bank where he has his PPF Account within one year from the date of maturity of his PPF Account.

This option allows him to put money in his PPF Account after extension.

This option allows the subscriber to withdraw up to 60% of the PPF Fund that was available in his PPF Account at the beginning of the extension period. Only one withdrawal is permitted in a single year.

Q. Withdrawals from PPF Account

PPF Scheme comes with a lock-in period of 15 years, and the whole money can only be withdrawn at the end of the maturity period, which is 15 years. The full amount that is withdrawn at the end of the maturity period is tax-free.

However, premature withdrawals are also permitted from the end of the sixth financial year which is equal to 50% of the fund that stood in the PPF Account at the end of the 4th year of running PPF Account.

Q. What is the minimum lock-in period for PPF Account?

PPF Account comes with a minimum locking period of 15 years. However, partial withdrawals are permitted from the end of the sixth year of running PPF Account.

Q. Is PPF Interest Taxable in India?

Interest received on PPF Deposits is Tax-Free in India. Contributions made towards PPF Account qualify for Tax Rebate under section 80C.

Moreover, Tax Bracket for PPF Account is EEE (i.e., Exempt, Exempt, and Exempt). So, contributions made towards PPF Account are exempted u/s 80C, interest earned is exempted as well as withdrawal is also tax exempted.

Q. What is the Eligibility for opening PPF Account?

Resident Indians, 18 years or above are eligible to open a PPF Account and no upper age limit for opening PPF Account. A person can open only one PPF Account.

PPF Account can be opened for minors. However, Grandparents cannot open a PPF Account in the names of their minor grandchildren.

Nonresident Indians (NRIs) cannot open a PPF Account.

However, those people who have opened a PPF Account and later taken the NRI status are allowed to maintain their PPF Accounts until the maturity date, but they are not eligible for the extension option at maturity.

HUFs cannot open a PPF Account. This is effective from 2005.

Foreigners are not eligible for opening a PPF Account.

PPF Calculator

Public Provident Fund Calculator is a simple online tool which allows you to calculate returns on your PPF (Public Provident Fund) Account.

With the help of PPF Calculator Online Tool, you come to know the maturity amount of your PPF deposits.

The PPF Calculator takes into consideration the present PPF Annual Rate of Interest (7.6% annual) and shows you the interest earned and maturity amount.

The results are shown in the chart and tabular form which are easy to comprehend and understand.

You are required to select the subscription option, which can be yearly or monthly. Then, you have to select the annual deposit amount (if you have opted for a yearly subscription) or else monthly deposit amount (if you have opted for a monthly subscription).

The PPF Tenure by default is 15 years which can be extended up to 30 years.

Once you select the subscription option, deposit amount, and tenure for your PPF Account, the Public Provident Fund Calculator shows you total deposit amount, Interest earned, and Maturity Amount.

The results are elaborately displayed in both tables as well as chart formats.

Check PPF Calculator

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